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Employers looking for ways to provide tax-advantaged benefits to their employees may come across Section 124 and Section 125 cafeteria plans. While both sections deal with employee compensation and benefits, they serve very different purposes.This guide breaks down the key differences between Section 124 and Section 125 plans, helping employers determine which option aligns with their business goals and workforce needs.
A Section 124 plan refers to Employee Stock Ownership Plans (ESOPs).
These plans are designed to:
Provide employees with company stock as part of their compensation
.Offer long-term incentives, tying employee performance to company growth.Allow tax-deferred contributions toward employee stock ownership.
Key Features of Section 124 PlansEmployees receive company stock as part of their benefits package.Stock ownership is held in a trust until the employee retires or leaves the company.
Offers potential tax advantages, including deferred taxation on stock appreciation.
Who Uses Section 124 Plans?Privately held and public companies that want to offer equity-based compensation.
Businesses looking to retain key employees with stock ownership incentives.
Maximize your business’s potential by offering tax-saving, IRS-compliant benefits that make a real difference for your employees.
